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Average cost of starting a business edges close to six-figures

5 Jul 12

Entrepreneurs require an average of £94,000 in capital to get their business off the ground, research from personal asset lender Borro has found.

The research, conducted by Opinium Research, questioned 250 small and medium sized business owners, revealed that more than a third (38 per cent) of businesses also had to dip into their own savings to increase their funds.

On top of this initial capital, one in ten businesses was found to have taken out short-term loans in the last 12 months in order support their business cash flow.

"With 2012 perceived as being one of the toughest years yet to either launch a small business or keep afloat, SME owners are increasingly having a look at alternative ways to secure the finance they need," said Borro's CEO Paul Aitken.

Owners taking out a loan to start their businesses typically have a higher than average start-up cost of £127,992. According to the survey, nearly £84,500 of this is raised through loaned credit - nearly 66 per cent of the total start-up cost.

Of those that turned to a loan to help cover their start-up costs, 42 per cent required additional loans once the business had launched.

Paul Aitken said that the UK's 'slump' into a double-dip recession had altered the ways small business owners were starting a new venture.

Over a fifth (22 per cent) of business owners had seen their stake in the business diluted as a result of selling shares or taking on new investors. This was most common in businesses with ten or more employees, with nearly a third having seen their share ownership decrease.

The Bank of England's latest summary of business conditions for June said that credit conditions had tightened, with firms reporting that bank rates and fees had risen.

The research found that nearly half (46 per cent) of small business owners surveyed said they had seriously considered either selling or closing their business altogether.

According to the Bank, businesses with strong balance sheets are more likely to borrow at reasonable terms. It found that smaller companies tended to prefer overdrafts to loans in order to help with cash flow, with many now turning their focus towards paying off outstanding loans.